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Margin in bank guarantee

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Querist : Anonymous

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Querist : Anonymous (Querist)
15 August 2010 I want to know, what does a margin % mean while availing bank guarantee from financial institution,what is the purpose of margin and how is it calculated? Please provide me with an example.
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VINOD ARORA

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VINOD ARORA (Expert)
15 August 2010 in case the bank, while issuing guarantee asks the client to deposit some money as a counter security, the same is called margin money.

Let us take an example where a bank stipulates in the limit sanction letter that BG for Rs. 10000 shall be issued against margin of 25% by way of fixed deposit. Then client has to make deposit of Rs. 2500 and afterwards bank shall take risk of issuing BG of Rs 10000.
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